Saturday, September 24, 2011

Jean Laherrère, co-founder of the Association for the Study of Peak Oil is a retired expert from Total. He picks apart the latest analysis from the champion of optimists, the American Daniel Yergin.

Daniel Yergin is back. The author of The Prize, an oft-cited history of oil which glorified the industry, last week has published an editorial in The Wall Street Journal, in advance of the release of his latest work, The Quest.

Daniel Yergin is the vice-president of IHS, a powerful economic intelligence agency considered to be very close to the major American oil companies. The arguments this first-rank analyst develops in the Wall Street Journal is a long-awaited counterattack on the proliferation of alarming forecasts for the future of global oil production.

Daniel Yergin admits that success in satisfying future demand for petroleum constitutes a “challenge”. But he says that he has severe doubts about the credibility of the members of ASPO, the Association for the Study of Peak Oil, who claim that this battle has already been lost, due to lack of sufficient oil reserves that remain to be exploited.

In his portrayal of the current situation, the vice-president of IHS omits a key fact: conventional oil production (the classical liquid oil which comprises 80% of the current crude oil supply) reached its absolute peak in 2006. The date of 2006 was predicted back in 1998 by Colin Campbell and Jean Laherrère, two petroleum geologists who founded ASPO.

And so I have asked Jean Laherrère, former chief of exploration technology at Total, to react to the key statements contained in the optimistic analysis provied by Daniel Yergin.

Daniel Yergin: “Just in the years 2007 to 2009, for every barrel of oil produced in the world, 1.6 barrels of new reserves were added.”

Jean Laherrère: Daniel Yergin cites official, political estimates published in the Oil & Gas Journal and by BP. According to these figures, global reserves were at 1253 billion barrels (Gb) in 2007 and at 1333 Gb in 2009, after the addition of 72 Gb of extra-heavy Orinoco oil discovered in Venezuela... in the late 1930s. What is, let us say, astounding about this, is that Mr. Yergin ignores confidential the figures from his own agency, IHS.

These figures, here they are. Note that they do not incude the extra-heavy oil

Discoveries (Gb)

Production (Gb)

2007

10.0

26.0

2008

13.0

26.3

2009

12.4

25.8

Total

35.4

78.1

The reality is that for each barrel produced less than 0.5 barrels have been discovered, and not 1.6! Oil continues to be consumed faster than it is discovered. This situation has lasted for a quarter of a century now.

Daniel Yergin: "One example [of revolutionary technology] is the "digital oil field," which uses sensors throughout the field to improve the data and communication between the field and a company's technology centers. If widely adopted, it could help to recover an enormous amount of additional oil worldwide—by one estimate, an extra 125 billion barrels, almost equivalent to the current estimate reserves of Iraq."

Jean Laherrère: It is at present quite fashionable to talk of the “digital oil field” to impress investors. But to this day I have not come across any mature field that has significantly increased its reserves by the use of this technology. To pretend to be able to grow reserves by 125 Gb thanks to this technology amounts to nothing more than wishful thinking, and does not stand up to any serious study.

How does one increase the size of recoverable reserves of oil fields? Well, first of all, there are secondary recovery techniques: the use of water or gas injection to maintain field pressure. This is a practice that is in actual use from the very begginning on all new oil fields.

Tertiary recovery (or EOR, for “enhanced oil recovery”) is used to modify the properties of the liquids: thermal methods (by using steam), chemical, or injection of oil-soluble gases such as CO2. It's in the United States that EOR is most developed. And yet the number of EOR projects has gone down from about 500 in 1986 to only 200 in 2010. They yielded 600000 barrels per day (bpd) in 1986. From 1992 to 2000, they have remained level at around 750000 bpd. In 2010, they produced no more than 650000 bpd, and this despite high oil prices and the generous easing of environmental regulations of the Bush era.

Technology can do nothing to modify the geology of an oil reservoir! It just allows it to be produced faster, thereby accelerating the decline of mature fields... Here's an example: the very pronounced production declines at the giant Mexican Cantarell field, which made use of massive nitrogen injections.

The rate of recovery of a feld depends above all on the properties of the field and the liquid it contains. This rate can be as high as 80% for sandstone or very porous limestone, and might not exceed 1% for a tight reservoir with isolated pockets.

Daniel Yergin: "A study by the U.S. Geological Survey found that 86 percent of oil reserves in the U.S. were the result not of what was estimated at the time of discovery but of revisions and additions from further development. "

Jean Laherrère:Evidence that the proven reserves of the United States do not increase: over the last decade, according to the US Department of Energy, the amount of upward revisions of U.S. reserves is roughly equal to the amount of downward revisions [pdf, see column 2: "net revisions"].

What allows Mr. Yergin to believe anything different? In the United States, reserves are reported according to the rules imposed by the SEC, the policeman of Wall Street. From 1977 to 2010, these rules required oil companies to report as "proved" only those reserves that were directly accessible by the wells already in production. The SEC prohibited the reporting of reserves called "probable" and found in the vicinity of these wells, even if the probability was very high.

This misleading rule was designed to protect the bankers who, if a producer went bankrupt, could decide to seize only the producing wells. This very narrow definition was anything but reliable, because it led to an underestimation of the actual reserves of American oil fields at the beginning of production, and their subsequent systematic upward re-evaluation.

Take, for example, the Kern River field, located in California. Since 2000, production from this old field has declined steadily. However, the amount of reserves reported for Kern River rose from 318 million barrels in 2000 to 542 million barrels in 2010. This amazing growth is due to the fact that between 2000 and 2010, 560 new wells were put into production (but failed to halt the decline of Kern River)!

Only the addition of both proven and probable reserves allows a field to be evaluated correctly. This method, called EPS, is now used everywhere the world—I actually participated in its development in 1997. Everywhere ... except in the United States. The growth of U.S. reserves which Mr. Yergin celebrates owes nothing to the advancement of technology: its cause is the incorrect method advocated by the SEC until 2010.

Moreover, since 2010, the SEC has lurched from one extreme to another. It now allows estimates of proved reserves not only from producing wells, but according to an evaluation model of the entire field that companies can keep secret! This new method supports all kinds of excesses and abuses, which have been denounced in the New York Times in particular.

This new SEC rule bore fruit in the form of the considerable growth of U.S. reserves of shale gas. Again, this has nothing to do with the implementation of technologies that are supposedly “new”, but which in reality have been there for thirty years, such as horizontal drilling and hydraulic fracturing of rocks. [Editor's note: land speculation fueled by questionable claims for reserves of shale gas is going to feed a large bubble in the U.S., according to an investigation by Ian Urbina New York Times, who is also the author of the article cited above.]

Daniel Yergin lies on reserves, just as Greece has lied about its deficits. Warning: in the world of energy, there are no rules—except to make money, and there are no referees and umpires!

Finally, a little background. In 2005, Daniel Yergin published an editorial in the Washington Post in which he was already mocking the pessimists, and in which he predicted that by 2010 global oil production capacity could increase by 16 million barrels per day (Mb/d) from from 85 to 101 Mb/d. Since then, global production capacity remained on a plateau of about 86 Mb/d... You ought to go back and re-read yourself, Mr. Yergin.

[Daniel Yergin's editorial has elicited other strong reactions among those who support the hypothesis of an imminent decline in the global production of liquid fuels. These include, notably, an on-line article by Professor Kjell Aleklett, president of ASPO International.

In 2008, Glenn Morton, a an American geophysicist and investor, published what he presented as an inventory of the optimistic but incorrect predictions about the state of the oil market provided over the years by Daniel Yergin and IHS.]

Thursday, September 22, 2011

Sunday, September 11, 2011

I'll be speaking at the ASPO in Washington, DC on November 2-5 on why gradual energy descent is a science-fiction scenario that includes friendly oil-exporting space aliens and why the end of the fossil fuel age is likely to be a step-function. I will also talk about investing for post-collapse. I believe that there might still be time to engineer a soft landing at the end of the upcoming economic cliff-diving exercise. This can be done if groups of individuals decide to sell off financial instruments that will have little or no survival value post-collapse (stocks, bonds, gold, etc.) and invest in something that is not useful now but will be: complete construction kits for businesses to deliver products and services that are certain to be in high demand, for lack of better alternatives. To make this scenario possible, it is necessary to design plans, recruit people and stockpile and pre-position materials while finance, industry and transportation systems are still functioning. I hope to see some of you there.

The 2011 ASPO-USA Conference, Peak Oil, Energy & the Economy, will provide eye-opening information and hard-nosed analysis to help you navigate an increasingly uncertain future. Featuring experts from a cross-cutting array of disciplines and perspectives, the Conference will empower you with the tools and connections to make critical decisions for your business, your family, and public policy.

Under the theme of "Truth in Energy," the conference will stress the essential need for reliable, transparent, fact-based information, and a full understanding of growing energy and economic challenges.

The ASPO-USA Peak Oil, Energy & the Economy Conference, November 2-5, 2011 in Washington, DC, is the world's premier event focused on peak oil challenges and solutions. It is produced by the nonprofit Association For The Study Of Peak Oil & Gas - USA (ASPO-USA). The format includes keynotes, plenary sessions, concurrent educational tracks, networking receptions, and exhibits. The conference is supported by more than 35 publications, websites and partnering associations. You can receive a $50 discount off the prevailing fees for Peak Aware Package registration option by inserting the code mediapartner when prompted on the eRegistration page linked from http://www.aspousa.org/conference/2011/Agenda.cfm

Saturday, September 10, 2011

Quite a few well-meaning people have written to ask me how I survived the recent hurricane. Some have even suggested that I should give up living aboard and flee to higher ground.

We spent the entire event at the dock, bobbing up and down slightly and leaning over a bit in the wind gusts. By the time she hit Boston Harbor, Irene was downgraded to a tropical storm, with the eye well to the west of us. Still, we got buckets of rain and several hours of gale winds.

The worst of it was the preparation. I had to clear lots of things off the docks and the deck, rig additional dock lines, lace up the sail cover so it wouldn't flog in the wind, take down the awning, secure the dink so that it wouldn't get bashed around, tie down various items on deck so that they wouldn't blow away, fill the water tanks for additional ballast and in case we lost shore water, and so forth. That seemed like a lot of work.

During the hurricane itself we stayed on board, where it was warm and dry. We rocked a bit, and we spent a few hours leaning at about a 15º angle in the stiff breeze. My wife and the cat pretty much slept through the entire event. I would venture out periodically, mill around on the docks with the neighbors, adjust a few dock lines, and go back inside.

A few worst case scenarios were being contemplated, without much conviction, because several people have seen much worse. In one scenario the docks themselves start breaking up and boats start bashing into each other. As it turned out, just one dock cleat pulled out and some boards popped out of the finger piers from the twisting. Another potential problem would be if wind gusts got so stiff that sailboat masts would get tangled up in each others' rigging, possibly leading to a few dismastings. They didn't even get close. The ultimate nightmare scenario involved a storm surge so huge that the entire structure would float off the pilings and crash into the seawall. We were well short of that, in spite of a couple of extra high tides due to the full moon that coincided with the storm surge. We never even lost shore electricity, shore water or internet access, but with a wind generator, 1000 liters of water and plenty of books this wouldn't have affected us too much either.

During the worst of it

It seems like our "house" was designed to take it better than your average house. In a hurricane, there is a high risk of flooding, so it is helpful if your house can float. Also, there is a high risk of very high winds, so the house should be streamlined in shape and able to withstand hurricane force winds, even while floating. The combination of water and wind is known to cause waves, so it is helpful if the house can take the ocean swell and the odd breaking wave without capsizing or swamping. There is a good chance of power cuts and water main and gas line breaks, so the house should have its own internal electricity generation system, and its own supplies of water and propane. Lastly, a hurricane might make a certain area uninhabitable for a period of time, prompting you to want to move, but hurricanes also tend to wash away roads and bridges, so it would be better if your house could make its escape via the waterways. There might also be fuel supply disruptions, so it's better if your house can move without the use of fossil fuels by, say, hoisting a sail or two. In short, if you want to survive a hurricane, you want to be on a sailboat.

Now, granted, you could also be perfectly safe in a house that's built to withstand a hurricane, in an area that's full of such houses. But where is that? Most people I know can't afford the house they are living in now, never mind making it hurricane-proof.

Aside from hurricanes, there are forest fires, tsunamis and earthquakes. Forest fires aren't much of a problem out on the water. Tsunamis are uniquely survivable aboard a boat, given a bit of warning; when you see the water going out, head for deep water. Then, once it's all over, come back to survey the damage. During the recent East Coast earthquake, which damaged the National Cathedral in Washington, everyone in Boston felt it. My wife didn't; she was on the boat at the time.

It was a wet and windy weekend, and I didn't get a lot done. But compared to the scenes of devastation we see among the East Coast communities from Hatteras all the way up the coast and inland through Western Massachusetts to Vermont, for those of us living afloat in the harbor Hurricane Irene was pretty much a non-event.